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Euan Rocha, Reuters

Empire Co Ltd, the operator of Canadian grocery chain Sobeys, said on Tuesday that Canada's competition watchdog approved its acquisition of substantially all of Safeway Inc's assets in Canada.

The deal cements Empire's position as Canada's No. 2 grocer behind Loblaw Companies Ltd at a time when competition from U.S. retailers Wal-Mart Stores and Target is heating up.

Empire announced in June that it was acquiring Safeway Inc's assets in Canada for $5.7 billion, a move that will nearly double its reach in the country's western provinces.

To win approval from the Competition Bureau, Empire said it has agreed to divest 23 stores in the provinces of British Columbia, Alberta, Saskatchewan and Manitoba.

In addition to 200 grocery stores, Empire is acquiring about 200 in-store pharmacies, along with some liquor stores, fuel stations and distribution centers. The deal is now expected to close some time next month.

Empire, which has been in the food business for over a century, already owns some 1,500 stores in 10 provinces across Canada with retail banners that include Sobeys, IGA, Foodland, FreshCo, Price Chopper and Thrifty Foods.

The assets that are being sold include 13 Safeway stores and 10 stores that operate under different banners owned by Empire.

The Competition Bureau, in a separate statement, said it concluded that the asset sales were required as the deal would otherwise have led to a substantial lessening of competition in the sale of a full-line of grocery products in a number of local markets in Western Canada.

The bureau, an independent law enforcement agency set up to ensure fair competition in Canada, said it believes Empire's agreement to divest 23 retail stores resolves these concerns.

The agency is currently reviewing another major deal in the Canadian retail sector - Loblaw's $12.4 billion)acquisition of Canada's biggest pharmacy chain, Shoppers Drug Mart Corp.

Competition law experts believe that the Shoppers deal, which was announced in July, is also likely to require some asset sales in order to win the bureau's approval.